Cash is king, and that can’t be more true than when you are a company, private or public.
Having tons of cash relative to debt not only means having a huge backstop in the event of a terrible market or business downturn, but it also means flexibility. Cash offers options to management, so they can pivot any which way they choose.
That’s great news for investors, because a sudden spend in cash can mean a number of different benefits. Maybe it’s a bigger dividend. Maybe it’s stock buybacks to prop up share prices. Maybe it’s a breathtaking, game-changing acquisition that boosts earnings down the road.
Here are 10 blue chips that have tons of cash and marketable securities, and my suggestions on what they should do with it — besides giving it all to me.
Blue Chips With Big Cash: #10, Facebook Inc (FB)
Cash & Marketable Securities: ~$18 billion
Facebook Inc (FB) has $18 billion in cash, no meaningful debt and one business: advertising.
Facebook needs to diversify, plain and simple. It’s clearly aware of this, given its $2 billion purchase of Oculus Rift in 2014 — which is leading to a big March release of a virtual reality headset.
However, there’s probably some kind of content synergy play here, also, given the number of users it has. Although user growth seems to be slowing, it’s not slowing as much as, say, Twitter Inc (TWTR), and Facebook still has a massive base that can and should be leveraged.
Facebook is about communication, so some kind of synergistic acquisition involving communications make sense also.
Otherwise, heck, pay a dividend. I prefer those over buybacks.
Blue Chips With Big Cash: #9, Amazon.com, Inc. (AMZN)
Cash & Marketable Securities: ~$20 billion
Amazon.com, Inc. (AMZN) doesn’t just have $20 billion in cash and securities — it also has less than half that ($8.2 billion) in debt.
Jeff Bezos has no problem spending money, and he’s dropping about $3 billion into content. AMZN also has been slowly taking over the world of cloud computing and I think it should continue to expand in that direction — possibly via acquisitions that make sense.
I also think AMZN is not that far removed from offering some kind of financial services product. It seems to do everything else. Getting into the highly fragmented market of small-business credit would have some synergy.
After all, businesses that get credit can turn around and spend that money at Amazon.
Blue Chips With Big Cash: #8, Qualcomm, Inc. (QCOM)
Cash & Marketable Securities: ~$31 billion
The math of more than $30 billion in cash and $11 billion in debt means Qualcomm, Inc. (QCOM) is in a great position — especially since it generates roughly $4.5 billion annually in free cash flow.
For Qualcomm, the road to success is the unimaginative one: Throw more money at shareholders.
QCOM does already pay out $2.88 billion annually in dividends, but there’s still room for an increase — because the currently healthy 3.7% yield is largely a byproduct of a share price that’s off more than 35% since mid-2014.
I’m not opposed to buybacks — and you could make the case that QCOM could use them, with 1.5 billion shares outstanding — but unless you’re a perfect market timer, it usually makes more sense to just pay shareholders in cold, hard cash.
Blue Chips With Big Cash: #7, Johnson & Johnson (JNJ)
Cash & Marketable Securities: ~$37 billion
You know what would earn Johnson & Johnson (JNJ) universal acclaim?
It would be something that frankly would not benefit shareholders in the long run, but it’s something Johnson & Johnson should do — in conjunction with a number of the other companies on this list and in the healthcare sector.
Everyone should pony up $10 billion and create a massive urgent care network around the country. Recruit doctors and nurses and physician assistants, and fill gaps in our healthcare system.
OK, that’s not going to happen.
But, with roughly $37 billion in cash vs. just $13 billion in debt, JNJ could do a lot to pad its dividend, which currently only yields 2.8%. Again, we’ll list buybacks as an option, but not one we’d like to see the company take.
Blue Chips With Big Cash: #6, Exxon Mobil Corporation (XOM)
Cash & Marketable Securities: ~$38 billion
If I were an oil company with $38 billion in cash and part of the blue chip cash parade, I would stride up to Capitol Hill and spend even more money to beat the next president into submission.
Give him so much that he can’t refuse to lift all bans on drilling in the U.S. Then give him more money to lift sanctions against Russia, so Exxon Mobil Corporation (XOM) can start exploiting the massive real estate deal it made with Russia to drill over there.
Then start drilling. Forget about oil prices. It will work out in the end.
Then, while Exxon is at it, start building more refineries out west so Californians aren’t paying the outrageous gasoline prices that we are stuck with now.
Blue Chips With Big Cash: #5, Oracle Corporation (ORCL)
Cash & Marketable Securities: ~$51 billion
If there was ever a candidate for a dividend boost, it’s Oracle Corporation (ORCL). Now, it does carry $40 billion in debt, yet that debt costs it only about 2.6% per year. I’d be happy to pay that down and improve earnings.
Meanwhile, its free cash flow is just insane — $13 billion annually and with consistency, versus just $2.45 billion in dividends!
Oracle isn’t exactly a spring chicken in the dividend game, especially for a tech stock. ORCL has paid out a quarterly sum since 2009. And yes, it has grown that payout substantially — to 15 cents currently from the original 5 cents per share it offered back then — but the yield is a paltry 1.5%.
With 4.2 billion shares outstanding, $5.9 billion would tack another $1.40 annually to the payout, which would have ORCL yielding a fat 5%. And even then, it’d still only be paying out about half its annual cash flow.
Dare to dream, but you can see how much room Oracle has.
Blue Chips With Big Cash: #4, Cisco Systems, Inc. (CSCO)
Cash & Marketable Securities: ~$61 billion
Sheesh. Cisco Systems, Inc. (CSCO) may not be in the news much anymore, but it has over $61 billion in cash and $25 billion in debt.
Free cash flow is even more robust, generating about $11 billion annually without breaking a sweat.
Again, though, Cisco is disappointing when it comes to the dividends it doles out.
It’s not the yield — CSCO yields 3.7%, and with shares near multiyear highs — but at $4 billion in dividends paid out annually, it could lift the yield to 5% by boosting the dividend by about $2 billion per year.
That 5% number would make it a top option in perpetuity to retirement investors.
Blue Chips With Big Cash: #3, Alphabet Inc (GOOG, GOOGL)
Cash & Marketable Securities: ~$73 billion
Alphabet, however, desperately needs to diversify its business. Yes, Google experiments with a lot of things, but at the end of the day, almost all of its revenue is from advertising.
Alphabet does have a venture capital arm, and that’s a smart use of funds. I would expand that portfolio, and like Amazon, I would also suggest a suite of financial services. I mentioned small-business credit, but GOOGL probably has an expertise in analytics, which means it may be easily transposed with underwriting metrics.
Alternatively, Alphabet could just finally buckle and pay a dividend. Even $7 per share every year — a roughly 1% yield to start with — would only account for about $4 billion in payments, and GOOGL generated about $16 billion in free cash flow last year.
Consider this highly unlikely, though, as Alphabet certainly (and fairly) continues to view itself as a growth company.
Blue Chips With Big Cash: #2, Microsoft Corporation (MSFT)
Cash & Marketable Securities: ~$114 billion
Perhaps the granddaddy of blue chips, Microsoft Corporation (MSFT), has $114 billion in cash and $41 billion in debt. It also produced about $24 billion in free cash flow last year.
And at the moment, it pays about $10 billion in dividends on an annual basis.
Considering the stock yields just 2.7% currently, Microsoft should definitively reward shareholders more. Another $1 per share would cost it $8 billion a year. Arguably, that could hamper R&D, but it would also send the dividend to about 4.7%.
That would lock MSFT in as a dividend stock for retirement investors, ensuring even more long-term demand for the stock.
A new buyback program could be in the cards soon, though. MSFT in 2013 announced a $40 billion repurchase plan that’s set to expire this year.
Blue Chips With Big Cash: #1, Apple Inc. (AAPL)
Cash & Marketable Securities: ~$216 billion
The biggest of blue chips, Apple Inc. (AAPL), has $215 billion of cash and investments, against only $53 billion in debt. There’s a slight problem in that most of it is parked overseas, and until corporate tax rates here get cut, it will remain there.
However, I think some acquisitions might be a good idea. AAPL is mostly dependent on the iPhone. I’m concerned about long-term product development. If Apple won’t create its own next big thing — and instead keeps iterating — then perhaps diversifying into synergistic businesses via acquisition makes sense.
I’ll tell you what AAPL should really do, though.
Apple should form an entertainment studio. There’s an opportunity for a visionary studio that up-ends the way content is produced. I’ll expand on this in another article, but Apple could drop $20 billion into this endeavor and disrupt the TV and movie business.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at [email protected].